If you are concerned about disguised remuneration schemes or have received an Accelerated Payment Notice from HMRC, we have the team of experts to help. Contact us today.
Disguised remuneration – an overview
Disguised remuneration is a term used to describe financial arrangements set up with the sole objective of avoiding any liability for taxes due on income, usually Pay As You Earn (“PAYE”) and National Insurance Contributions (“NICs”). The term is used to distinguish legitimate tax planning schemes with illegal ones.
HMRC response to Disguised remuneration schemes
Unsurprisingly, HMRC do not like disguised remuneration schemes as they deprive the country of badly needed tax revenue.
As a result, the Government introduced legislation to prohibit the use of schemes set-up solely for the purpose of evading tax. Our Partner, Stephen Downie, has written the comprehensive guide to applying this legislation for Lexis Nexis.
What types of schemes are covered?
The types of schemes falling under the legislation commonly include the following:
- Schemes designed to allow payments which could simultaneously be deducted from corporation tax as an expense.
- Employee Benefit Trusts (“EBTs”) and unregulated pension schemes such as Employee Financed Retirement Benefit Schemes (“EFRBS”), where the “loan” nature of the payment was relied upon to avoid any charge for tax.
Different legislation to consider
Initially changes were implemented through legislation referred to as “anti-avoidance measures” including the diversion of income and the use of “service companies” to mitigate tax.
- further legislation was introduced in 2003 which sought to redefine and clarify what employment and income referred to, with the attempt to qualify who fell within the PAYE/NIC tax provisions, although the collection of PAYE/NIC has faced continuing problems (despite a number of amendments since) due to the ever-changing nature of the tax schemes adopted;
- more changes were then introduced by the Finance Act 2011 and then subsequently by the Finance Act 2017 and Finance Act (No.2) 2017 (“the Finance Acts 2017”), which importantly introduced the loan charge which is chargeable on disguised remuneration loans and imposed on companies or individuals who had participated in disguised remuneration schemes.
Difficulties for beneficiaries of schemes
Over the past fifteen years, the wealth of legislation introduced by the government to target disguised remuneration tax avoidance schemes as meant it has been hard for beneficiaries of different tax schemes to interpret and understand their position.
Often the beneficiaries are company directors and employees who are focussed on running their businesses and not the intricacies of new tax legislation.
When to take advice on possible disguised remuneration schemes
If you have received income from a disguised remuneration scheme since 9 December 2010, we strongly recommend you contact our team for advice, even if HMRC have not yet raised an enquiry or issued a determination. The earlier advice is taken regarding such schemes, the better, so you can be fully informed as to your rights, obligations and the options available to you.
Accelerated Payment Notices
In 2014 tax legislation was introduced which requires payments on account of tax liabilities arising under disguised remuneration schemes to be made up front. HMRC issued notices referred to as Accelerated Payment Notices (“APNs”) to request the payments on account of tax liabilities.
An accelerated payment notice is a notice issued by HMRC to put a company on notice of taxes that HMRC believe are due and owing but which a company may have believed were not payable, given the company’s participation in a disguised remuneration scheme.
When is an accelerated payment notice likely to be received?
An APN is likely to be received where
- there is an ongoing negotiation, dispute or investigation into a tax scheme in which a company or individual has participated:
- the company has participated in a tax scheme which has been recommended by a tax advisor and which may already be subject to a settled dispute between HMRC and another taxpayer (e.g. via an appeal to the Tax Tribunal or the Courts). In this instance, a “Follower Notice” may be sent to other participants following the same (or a similar) scheme (perhaps provided by the same tax advisor):
- disclosure of a tax arrangement has been made:
- the appropriate notices have been issued pursuant to anti-abuse regulations.
How much is the APN likely to be?
The Accelerated Payment Notice will usually be equivalent to the amount of “understated tax” as determined by HMRC. This will be payable even if there is an appeal ongoing to a Tax Tribunal.
There is no right of appeal against an APN and the APN is payable within 90 days, although if negotiations are initiated then a further 30 days’ extension is permissible (if the 90 day period is due to expire) or alternatively HMRC may agree to withdraw the APN.
Can the APN be negotiated?
Yes it can. It is far better to instruct our expert tax defence team to negotiate these type of notices.
However, if you choose to negotiate yourself, you must be aware of HMRC’s internal procedures for doing to and this is particularly important when considering appeals against tax negotiations which may have been concluded by HMRC, as any such appeal may trigger the issue of an APN.
What if the APN is not paid?
If you are unable to pay the Accelerated Payment Notice, it is critical that you engage and negotiate with HMRC as soon as possible. Otherwise, if the APN is not paid within the stated 90 day period (and it has not been withdrawn and there is no extension) then penalties and surcharges will accrue in addition to the sum payable on the APN.
HMRC will listen to any reasonable excuses for late payment but, as stated above, this will depend upon early engagement and negotiation of the sums payable under the notice.
Liquidated companies and liquidator claims
Increasingly, directors of liquidated companies that were involved in a disguised remuneration scheme are finding themselves subject to a claim by both HMRC and the company liquidator. HMRC can transfer personal liability to a director for PAYE arising from a disguised remuneration scheme where the correct notices are issued.
We can help as follows:
- we can check to make sure HMRC have followed the correct process to transfer liability from the liquidated company to a beneficiary (often a director or employee) of a disguised remuneration scheme;
- Whilsta liquidator may have grounds to pursue a director for breach of his / her fiduciary duties to the company (if the liquidated company participated in a disguised remuneration scheme and this was not in the company’s interest), we can still defend these claims.
- it is not always the case that if you are a participant in a disguised remuneration scheme, or a director of a company that has participated in a disguised remuneration scheme, that you will bear liability for all taxes that have arisen.
- We can help assess your liability, the scheme documentation, trust arrangements and any other contractual aspects must be considered along with the professional advice provided at the time the scheme started.
Claims against professional advisers
We can also assist to identify whether there is a valid claim against the advisers who recommended a disguised remuneration scheme. Whether there are sufficient merits to pursue a professional negligence claim, will be fact sensitive and turn on the advice given and the terms of the advisers engagement.
Our team are experienced in assessing claims and where there has been negligent advice, we can assist you with a claim against the advisers with a view to helping you recover the losses incurred as a result of the negligent advice.
“FWJ did precisely what it set out to do. I am extremely grateful for its assistance.”A client who had received a Request for Security from HMRC for a sum that would have caused their company severe financial difficulties. We helped them to have the entire bill withdrawn
At Francis Wilks & Jones we have considerable experience of assisting directors and business owners with threats of investigation by HMRC. We deal with all types of claims and schemes and their potential liability, particularly with regard to claims arising out of insolvency or claims for breach of a director’s fiduciary duties. Whatever your enquiry, our tax disputes team can help.